Small Business Reading Room

Friday, January 13, 2006

National Taxpayer Advocate Releases 2005 Report to Congress; Stresses Need for Fundamental Tax Simplification

It's all about customer service, right?

On January 10, 2006, National Taxpayer Advocate Nina E. Olson issued a report urging Congress to simplify the tax code.

"Our tax code has grown so complex that it creates opportunities for taxpayers to make inadvertent mistakes as well as to game the system," Olson writes. "As taxpayers become confused and make mistakes, or deliberately 'Push the envelope,' the IRS understandably responds with increased enforcement actions. The exploitation of 'loopholes' leads to calls for new legislation to crack down on abuses, which in turn makes the tax law more complex. Thus begins an endless cycle – complexity drives inadvertent error and fraud, which drive increased enforcement or new legislation, which drives additional complexity. In short, complexity begets more complexity. This cycle can only be broken by true tax simplification, followed by ongoing legislative and administrative discipline to avoid 'complexity creep.'"

In her report, Olsen recommends that any revision incorporate six core principles:

1. It should not "entrap" taxpayers.

2. It should be simple enough so that taxpayers can prepare their own returns without professional help, simple enough so that taxpayers can compute their tax liabilities on a single form, and simple enough so that IRS telephone assistors can fully and accurately answer taxpayers’ questions.

3. It should be written in a way that anticipates the largest areas of noncompliance and minimizes the opportunities for such noncompliance.

4. It should provide some choices, but not too many choices.

5. It should not necessarily avoid refundable credits but, if it includes them, it should design them in a way that is administrable.

6. It should require a periodic review of its provisions – in short, a sanity check.

Anyone else ever heard this song before?

If you'd like to read the whole article from the IRS newsroom, you can find it below:

National Taxpayer Advocate Releases 2005 Report to Congress; Stresses Need for Fundamental Tax Simplification


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